Stone Creek Mechanical Inc.

1The Court has jurisdiction to hear this matter because IFIC is
essentially asserting a lien (equitable or otherwise) against funds
which are property of the estate. 	See 28 U.S.C. § 157(b)(2)(K)
(listing among core proceedings determination of the validity, extent
or priority of liens)
In 	the 	United 	States 	Bankruptcy 	Court
For 	the 	Eastern 	District 	of 	Pennsylvania
In re 	: Chapter 11
:
Stone Creek Mechanical, Inc. 	:
:
Debtor(s) 	: Bankruptcy No. 04-11255 SR
Opinion
By: Stephen Raslavich, United States Bankruptcy Judge.
Introduction.
Before the Court is the Creditors Committee’s Motion to
Compel Enforcement of the Debtor’s settlement of its delay damage
claim against the Pennsbury School District. 	International
Fidelity Insurance Company (IFIC) opposes the Motion. 	A hearing
on the matter was held on November 9, 2006. 	The parties were
allowed to submit briefs after which the Court took the matter
under advisement. 	For the reasons set forth below, the
Committee’s Motion will be granted. 1
Factual Background
The Debtor was an HVAC contractor. 	Motion to Compel, ¶
2. 	Prepetition, it had contracted with the Pennsbury School
District (the District) to install an HVAC system at the Manor
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2Neither party offered the Contract into the record; however,
they appear to agree on certain contract terms. 	See generally
pleadings, briefs and transcript.
2
Elementary School (the Manor job). 	Id., ¶ 4. 	The contract price
was approximately $2 million. 2 	See Committee Brief, Ex. A. 	The
Debtor would receive progress payments and the District would
retain a certain percentage pending completion. 	The contract
required the Debtor to post a performance and payment bond in the
contract amount. 	The Debtor obtained such bonds from IFIC and
executed an Indemnity Agreement as IFIC required. 	See id.,
Exhibits A, B.
After the bankruptcy was filed, IFIC would learn that
instead of paying its subcontractors on the Manor job and others,
the Debtor had diverted progress payments elsewhere. 	See IFIC’s
Motion for Relief from Stay or Adequate Protection, ¶ 12. 	This
caused the Debtor’s subs and suppliers to file claims on the
payment and performance bonds which IFIC had issued. 	Id. To
limit its exposure, IFIC obtained from this Court an order of
adequate protection requiring that any remaining progress
payments be made payable to the Debtor and IFIC. 	See Order of
March 6, 2006. 	This allowed IFIC to ensure that the Debtor would
pay its subs and suppliers.
The Debtor encountered another problem related to the Manor
job. 	It was unable to complete the work on time so the parties
agreed to extend the term of the contract. 	See Debtor’s Motion
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for Authority to Settle Delay Damage Claim, ¶ 3. 	This caused the
Debtor to incur additional costs of $45,000 which the District
refused to pay. 	Id. 	The Debtor sued the District for that
amount plus another $100,000 in delay damages. 	Id. 	The dispute
as to delay damages was submitted to mediation and the Debtor
agreed to settle that claim for $78,500. 	Id. 	The Debtor filed a
motion for authority to settle the delay claim on the terms
reached at mediation. 	The motion specifically limited itself to
the delay damage claim. 	See Motion for Approval, ¶5. 	No
party—including most importantly, IFIC—objected to this
resolution. 	The Court’s Order approving that settlement
reiterated that it was limited to the delay damage claim. 	See
Order dated June 8, 2006.
This, however, did not end the matter as the District
refused to pay the settlement amount. 	At this time, the District
believed that the Debtor’s work on the Manor job was inadequate.
T-22 	Remediation would cost at least another $33,600 and perhaps
even exceed the $56,000 which the District was holding in
contract retainage. 	T-23. 	The District argued—at least
implicitly—that it need not tender the money settling the delay
claim until it resolved what it owed to complete the entire job.
T-21. 	At the hearing on the Committee’s Motion to Compel
Enforcement of the Settlement Agreement, this Court flatly
rejected that premise. 	T-22. 	Whereupon, the District confirmed
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to the Court that the delay damage funds would be tendered
forthwith. 	T-24. 	Those funds are presently in Committee
Counsel’s escrow account. 	See Committee’s Brief, 3 n.3.
The Court, however, has not yet granted the motion to
compel. 	That is because IFIC has asserted a prior right to the
settlement funds. 	See IFIC’s Answer and Cross Motion. 	It
maintains that it has not yet been reimbursed for paying bond
claims totaling $78,492. 	See id, ¶ 4. 	It also contends that
there another $86,750 in pending claims. 	Id. ¶ 6. 	Any funds not
yet paid by the District, IFIC concludes, rightly belong to it.
The Arguments
IFIC offers three reasons why the settlement funds belong
to it: first, the Court entered an Order of adequate protection
requiring such funds to be made payable to the Debtor and IFIC;
second, IFIC is equitably subrogated to the delay damage fund;
and third, those funds are held in trust for IFIC’s benefit. 	See
IFIC’s Answer and Cross Motion and its Letter Brief. 	To
considerable extent, the Committee is in agreement with IFIC’s
arguments. 	That is to say, it does not deny that the March 6
Order granted certain protections to IFIC. 	Neither does it deny
that IFIC has equitable subordination rights in certain funds or
that the Indemnity Agreement impresses certain payments with a
trust. 	Where the Committee parts company with IFIC is on the
question of how far those protections and rights extend. 	To the
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Committee, neither the March 6 Order nor the bond documents
extend those rights to the delay damage settlement. 	Relying
principally on the language in the two bonds, the Committee
contends that IFIC’s superior interest is limited to the amounts
payable under the contract. 	Any additional recovery by the
Debtor (e.g., a delay damages award), it concludes, are property
of the bankruptcy estate. 	See Committee’s Brief.
The March 6 Order
IFIC maintains that this Court’s Order of March 6, 2006,
provides it with a paramount interest in the settlement funds.
See IFIC’s Answer and Cross Motion, 2. 	That order, the parties
will recall, resolved IFIC’s Motion for Relief from Stay or
Adequate Protection. 	It provided that all “bonded contract
funds” 	be made jointly to the Debtor and IFIC so that IFIC could
ensure that the Debtor’s subs and suppliers were being paid.
IFIC maintains that the terms “bonded contract funds” necessarily
includes a claim for delay damages. 	The Order, however, does not
define the term. 	The Court recalls that the underlying motion
referenced what it called “bonded contracts.” 	It did 	so by bond
number, date of issuance, the principal (surety nomenclature for
the contractor), the obligee (the school districts), the project
name, and the contract price. 	Important for present purposes is
the cost stated for the Manor job, $2.047 million. 	That still
does not help the Court determine whether the delay damage
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3The Court does not make much of the Committee’s point that
IFIC’s Motion for Relief requested protection only for progress and
retainage payments, never mentioning delay damages. 	See Committee
Brief, n.5. 	That may very well be explained by IFIC not anticipating
at that time that the Debtor might have a delay damage claim in the
future.
6
settlement is “bonded contract funds.” 3 	For that, the Court must
analyze the bond documentation which supported IFIC’s motion for
relief.
The Court begins with the bonds themselves. 	Those
instruments serve to protect the contracting public entity (here,
the District in the case of the performance bond) and
subcontractors and suppliers (in the case of the payment bond).
See 8 Pa.C.S.A. § 193. 	Neither define to what extent IFIC might
be able to assert an interest in any money paid by the District
to the Debtor. 	The Indemnity Agreement, on the other hand, comes
closer to the issue. 	It serves to protect IFIC, as the bond
issuer, to the extent it must pay claims made on the bonds. 	It
provides that the Debtor assigned to IFIC “all the rights of the
[Debtor] in, and growing in any manner out of, all contracts
referred to in the bonds, or in, or growing in any manner out of,
the Bonds.” See Exhibit A to Motion for Relief, Indemnity
Agreement, ¶ THIRD, p. 2. 	Would this include any money collected
by the Debtor for a delay damage claim?
The Committee say no. 	It points out that under Pennsylvania
law a surety is not liable for a delay damage claim. 	See
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Committee’s Brief at 8 citing Salvino Steel & Iron Works, Inc. v.
Fletcher & Sons, Inc., 398 Pa.Super. 86, 92, 580 A.2d 853, 856
(Pa.Super.1990). 	From that it extrapolates that a bonding
company’s security cannot extend to a delay damage award.
Committee’s Brief, 9. 	But that does not necessarily follow. 	A
surety may not be liable for delay damages but its principal
(i.e., the contractor) may have assigned to its surety a claim
for delay damages which it might recover from the owner of the
property on the bonded job. 	The Salvino decision is based on the
terms of the bond, see C. Arena & Co., Inc., v. St. Paul Fire &
Marine Ins. Co., 1993 WL 452184 *4 (E.D.Pa.)(explaining that
Salvino held that text of bond determined scope of bond’s
coverage), while the Committee’s premise derives from language in
the Indemnity Agreement. 	Its reliance on Salvino is misplaced.
While the Court rejects that argument, it agrees with the
Committee on the ultimate outcome, albeit for different reasons.
The Court’s focus here is not on the bonds but on the Indemnity
Agreement. 	It provides, in pertinent part:
ASSIGNMENT
THIRD: 	The Contractor, the Indemnitors
hereby consenting, will assign, transfer an
set over, and does hereby assign, transfer
and set over to the Surety, as collateral, to
secure the obligations in any and all of the
paragraphs of this Agreement … (a) All the
rights of the Contractor in, and growing in
any manner out of, all contracts referred to
in the Bonds, or in, or growing in any manner
out of the Bonds; … (e) Any and all
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percentages retained and any and all sums
that may be due or hereafter become due on
account of any and all contracts referred to
in the Bonds and all other contracts referred
to in the Bonds and all other contracts
whether bonded or not in which the Contractor
has an interest.
See Indemnity Agreement, ¶ THIRD, Ex. A to IFIC’s Motion for
Relief (emphasis added). 	The Court finds such broad language to
be unhelpful in determining if IFIC’s security includes a delay
claim. 	Moreover, the issue is not illuminated by the contract as
neither party made it part of the record. 	Stated simply, the
record, such as it is on this point, is vague; it does not allow
the Court to make a clear inference that the delay damage award,
along with the progress and retainage payment, constitute “bonded
contract funds.” 	And where there is such ambiguity, the contract
provision in question may be interpreted against the party which
drafted it. 	See Raiken v. Mellon, 399 Pa.Super. 192, 198, 582
A.2d 11, 13 (Pa.Super. 1990); see also Donegal Mutual Ins. Co. v.
Raymond, 899 A.2d 357, 361 (Pa.Super.2006) (applying same
principle of interpretation to an insurance contract). 	In this
case, the drafter is IFIC. 	The Court finds that neither the
March 6 Order nor the 	documents underlying IFIC’s Motion make
the delay damage funds property of IFIC.
Equitable Subrogation
Alternatively, IFIC asserts that it possesses an equitable
right of subrogation in those funds which is superior to that of
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the estate. 	Under § 541(a)(1) of the Bankruptcy Code, property
of the estate consists of “all legal or equitable interests of
the debtor in property as of the commencement of the case.”
(emphasis added) 	While that provision is interpreted broadly,
see United States v. Whiting Pools, Inc., 462 U.S. 198, 204-205,
103 S.Ct. 2309, 2313-2314, 76 L.Ed.2d 515 (1983); while it
extends to property “wherever located and by whomever held,” see
11 U.S.C. § 541(a)); and while it includes the debtor's legal,
equitable and possessory interests, see Mays v. United States (In
re Mays), 85 B.R. 955, 960 (Bankr.E.D.Pa 1988) (citations
omitted), there are exceptions to this rule. 	Among those
exceptions is “[p]roperty in which the debtor holds, as of the
commencement of the case, only legal title and not an equitable
interest …” 	11 U.S.C. § 541(d). 	“To the extent that such an
interest is limited in the hands of the debtor, it is equally
limited in the hands of the estate …” In re Columbia Gas, 391
F.3d 190, 210 (3d Cir.2004). 	“‘Although section 541 [of the
Bankruptcy Code] defines property of the estate, we must look to
state law to determine if a property right exists and to stake
out its dimensions.’” Universal Bonding Ins. Co. v. Gittens &
Sprinkle Enter., Inc., 960 F.2d 366, 369 (3d Cir.1992) (quoting
In re Nejberger, 934 F.2d 1300, 1302 (3d Cir.1991)); see also
Butner v. United States, 440 U.S. 48, 54, 99 S.Ct. 914, 918, 59
L.Ed.2d 136 (1979) (“Congress has generally left the
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determination of property rights in the assets of a bankrupt's
estate to state law.”).
The equitable right of subrogation is recognized under
Pennsylvania law. 	See Jacobs v. Northeastern Corporation, 416
Pa. 417, 420-21, 206 A.2d 49, 50 (1965) (holding that doctrine
applies to public construction project). 	Nowhere is equitable
subrogation more appropriate or common than in the context of
suretyship. 	In re Alcon Demolition, Inc., 204 B.R. 440, 446
(Bankr.D.N.J.1997). 	Indeed, the United States Supreme Court has
noted that “there are few doctrines better established than that
a surety who pays the debt of another is entitled to all the
rights of the person he paid to enforce his right to be
reimbursed.” Pearlman v. Reliance Ins. Co., 371 U.S. 132, 136-37,
83 S.Ct. 232, 235, 9 L.Ed.2d 1990 (1992). 	Where a surety
performs or pays subcontractors to perform pursuant to a
performance and payment bond, it has rights to reimbursement from
the remaining contract funds. 	Prairie State Nat'l Bank, 164 U.S.
227, 232-33, 17 S.Ct. 142, 144 (applying equitable right of
subrogation to surety who completes contract); Henningsen v.
United States Fid. & Guar. Co., 208 U.S. 404, 410, 28 S.Ct. 389,
391, 52 L.Ed. 547 (1908)(applying that same right to surety
completes contract or, if not called upon to complete, pays
laborers and materialmen). 	Relying on Pearlman, supra, and
subsequent case law expanding that holding, IFIC maintains that
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it is equitably subrogated to Debtor’s right to collect that
amount from the District from whatever source. 	IFIC’s Cross
Motion, ¶ 7; IFIC’s Letter Brief, 3-4. 	For its part, the
Committee argues that IFIC’s reliance on Pearlman is misplaced.
It reads Pearlman to limit the rights of subrogation of the
surety to retained contract funds. 	See Committee Brief, 6. 	It
reads related authority to limit such rights to unearned progress
payments as well. 	Id. 	That, the Committee concludes, is as far
as IFIC’s equitable rights extend here.
The Court’s reading of Pearlman is consistent with that of
the Committee. 	The Pearlman holding is limited to retained
funds. 	371 U.S. at 141, 83 S.Ct. at 237. 	There is no mention of
the surety having equitable rights in anything else. 	Subsequent
case law extends Pearlman to the rights of the surety to contract
receivables, i.e., progress payments. 	See In re Ram Constr. Co.,
Inc., 32 B.R. 758, 761 (Bankr.E.D.Pa. 1983); Balboa Ins. Co. v.
United States, 775 F.2d 1158, 1163 (Fed.Cir.1985)(holding that
doctrine applies equally to earned progress payments); see also
J. Michael Franks and Michael E. Evans, A Defense of Established
Landmarks: Claims of Construction Sureties to Contract Funds
Under Chapter 11, 25 Tort & Ins.L.J 28, 34 (Fall 1989)(“[O}nce a
surety’s interest by way of subrogation comes into existence, it
should reach both retainage and progress payments.”) 	Moreover,
none of the cases cited in IFIC’s Letter Brief persuade the Court
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4Lacy v. Maryland Ins.Co., 32 F.2d 48, 51 (4 th Cir.1929)(holding
that subrogation right not limited to retainage but includes current
estimates as well).
5In re Dutcher Constr. Corp., 378 F.2d 866 (2d Cir. 1967)
6Aetna Cas. & Sur.Co. v. Port of New York Authority, 182 F.Supp.
671, 674 (S.D.N.Y.1961)
7In re Cummins Const. Corp., 81 F.Supp. 193, 202 (D.Md.1948)
8In re Alliance Prop., Inc., 104 B.R. 306 (Bankr.S.D.Ca.1989).
12
that such rights would extend to the claim at issue here. 	See
Letter Brief, 3. 	Each of them, in one way or another, is based
on a provision in the contract or is otherwise distinguishable.
The Court will highlight the pertinent aspect of each cited case
to demonstrate the point.
Pearlman of course needs no further analysis as the
holding’s limits are clear. 	Neither does Lacy,4 given that it is
not disputed that earned and unpaid progress payments are subject
to the surety’s equitable right. 	As to Dutcher, 5 the surety’s
subrogation rights were held to include extra costs associated
with change orders. 	378 F.2d at 871. 	But in that case, the
contract in question specifically provided for what it termed
“changed conditions.” 	378 F.2d at 866-67. 	Essentially the same
holding is found in Aetna6 as to early completion bonuses and in
Cummins7 for a rebate from the government to the contractor of a
liquidated damages assessment. 	See 182 F.Supp. at 673; 81
F.Supp. at 195. 	In Alliance,8 the surety successfully asserted
subrogation rights to an “equitable adjustment” which the debtor-
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9In re Alcon Demolition, Inc., 204 B.R. 440 (Bankr.D.N.J.1997)
13
contractor blamed on the government. 	However, the Court would
specifically find while “the record is not clear as to which
portion of this fund is attributable to retentions, progress
payments or contract damages, … the inescapable fact is that the
fund is part of the final payment on the contract.” 	104 B.R. at
311. 	Finally, in Alcon9—the case first brought to the Court’s
attention at the hearing— the Debtor was terminated by its
general contractor for failing to pay subcontractors. 	Its
contract with the general contractor provided that such disputes
would be submitted to arbitration. 	The Debtor obtained an
arbitration award against which the surety asserted subrogation
rights. 	The Court would rule in favor of the surety finding that
its rights of subrogation were “identifiable to the contract.”
204 B.R. 448.
There is a common thread to all of these cases: each
award–and, thereby, the surety’s subrogation right—derived from
some provision in the contract. 	In the present case, the
contract between the Debtor and District has not been made part
of the record. 	Thus, the Court cannot determine if a delay
damage claim has some nexus with the contract or is wholly
independent of it. 	The Court’s own research, meanwhile, turned
up one case in which a surety unsuccessfully sought to subrogate
itself to a contractor’s delay damage claim. 	See Westech Corp.
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v. United States, 20 Cl.Ct. 745 (Cl.Ct. 1992). 	In Westech, the
Federal Claims Court would deny the standing of a surety who
sought to recover for delay and acceleration damages suffered by
the contractor. 	Id. at 749. 	It noted that the surety’s ability
to recover such damages is beyond the scope of equitable
subrogation. 	Id. at 750. 	Accordingly, the Court finds that
IFIC’s has not established a right of equitable subrogation in
the delay damage settlement fund.
The Delay Damage
Award as Trust Funds
For its final argument, IFIC returns to the Indemnity
Agreement. 	There, it points to the provision that “all monies
due and to become due under any contract or contracts covered by
the Bonds are trust funds.” 	See Indemnity Agreement attached as
Exhibit A to Motion for Relief, paragraph FOURTH. 	(emphasis
added) 	IFIC maintains that this language establishes the
intention of the parties to create an express trust under
Pennsylvania law. 	See IFIC’s Letter Brief, 5. 	For its part,
the Committee contends that the parties did not intend to include
a delay damage claim in the trust paragraph of the Indemnity
Agreement. 	See Committee Brief, 10. 	Those funds are defined by
the amount of the bond, $2.047, million and would not include
delay damages. 	To the extent that the contract is vague on this
point, their argument continues, it must be construed against the
drafter (IFIC, in this case). 	Id.
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The Court would agree with the Committee but not for the
reasons offered. 	Unlike the Committee, the Court the does find
that the issue turns on vagueness. 	To the contrary, the
operative provision is quite clear; it is found not in the bonds
but in the Indemnity Agreement. 	In pertinent part, that
agreement provides:
TRUST FUND
FOURTH: 	If any of the Bonds are executed in
connection with a contract which by its terms
or by law prohibits the assignment of the
contract price, or any part thereof, the
Contractor and Indemnitors covenant and agree
that all payments received for or on account
of said contract shall be held as a trust
fund in which the Surety has an interest, for
the payment of obligations incurred in the
performance of the contract and for labor,
materials, and services furnished in the
prosecution of the work provided in said
contract or any authorized extension or
modification thereof; and, further, it is
expressly understood and declared that all
monies due and to become due under any
contract or contracts covered by the Bonds
are trust funds, whether in the possession of
the Contractor or Indemnitors or otherwise,
for the benefit of and for payment of all
such obligations in connection with any such
contract or contracts for which the Surety
would be liable under any of said Bonds,
which said trust also inures to the benefit
of the Surety for any liability or loss it
may have or sustain under any said Bonds, and
this Agreement and declaration shall also
constitute notice of such trust.
See IFIC’s Motion for Relief, Ex. A, Indemnity Agreement, ¶
FOURTH (emphasis added). 	IFIC’s trust claim is based on the
second emphasized excerpt from paragraph FOURTH of the Indemnity
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10The Federal Rules of Civil Procedure require that conditions
precedent be pleaded. 	See F.R.C.P. 9(c), incorporated by B.R. 7009.
11Indeed, it was IFIC’s use of brackets in the first words of the
excerpt cited in support of its trust argument that prompted the Court
to investigate whether all of the terms of that provision of the
Indemnity Agreement were set forth. 	See IFIC’s Letter Brief, 4. 	But
as that document was not made part of the record, the Court had to
look elsewhere. 	The Indemnity Agreement was attached as an exhibit in
support of IFIC’s Motion for Relief, which is where the Court found
it.
16
Agreement: “all monies due and to become due under any contract
or contracts covered by the Bonds are trust funds.” The fault
with that argument is that it ignores a condition precedent which
is the first excerpt given emphasis. 	By its express terms, the
Indemnity Agreement requires that the construction contract first
prohibit assignment of the contract funds before such funds may
be impressed with a trust. 	Is that demonstrated by this record?
It is not. 	To begin with, IFIC’s Cross Motion neither
pleaded this condition precedent 10 nor, for that matter, did it
plead the existence of a trust. 	In fact, this argument would not
be made until IFIC submitted its Letter Brief after the hearing.
Even there, neither the Indemnity Agreement nor the construction
contract were attached to the brief or otherwise made part of the
record. 11 	What is the effect of that omission?
Where a cause of action is founded on a condition precedent,
the plaintiff has the burden of proving that such condition was
satisfied. 	See First Tennessee Bank National Association v.
Barreto, 268 F.3d 319, 328 n.6 (6th Cir.2001)(noting most
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12Coincidentally, IFIC was confronted with this very same issue
within the last few months. 	In a case before Chief Judge Sigmund of
this Court, IFIC had sued a contractor debtor alleging that it was the
victim of fiduciary fraud on the contractor-debtor’s part. 	See
International Fidelity Insurance Company v. Marques (In re Marques),
2006 WL 3850025 (Bankr.E.D.Pa.) 	It attempted to prove the existence
of trust fund in certain contract payments. 	It relied on the very
same provision in an indemnity agreement in that case. 	Id. *2. 	And
just as in this case, it failed to make the construction contact part
of that record. 	Id. *4. 	That prevented the Court from determining
whether the condition precedent to a trust had been satisfied. 	Id.
*7.
17
jurisdictions, including federal law, place the burden of proof
on the plaintiff to prove that the condition precedent was
satisfied); Mellon Bank, N.A. v. Aetna Business Credit, Inc., 619
F.2d 1001, 1008 (3rd Cir.1980) (applying Pennsylvania law that
plaintiff had the burden of showing that the borrowers were
solvent as a condition precedent to recovery for breach of
defendant's promise). 	A leading commentator confirms this. 	2
Moore’s Federal Practice § 9.04[4] (2d ed.)(“Rule 9(c) does not
alter the burden of proof on issues of conditions precedent”).
Without a copy of the underlying contract, the Court cannot tell,
then, whether that condition precedent was satisfied. 12
Accordingly, IFIC’s claim that the delay damage settlement are
trust funds must fail.
Laches
A final issue raised by the Committee is the timing of
IFIC’s opposition. 	It points out that IFIC did not object to the
Debtor’s proposed settlement of the delay damage claim. 	T-13.
IFIC acted only after it became apparent that the amount of money
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13Indeed, it is a difference of no more than $8.
18
held by the District as retainage—money to which IFIC would be
otherwise equitably subrogated—was diminishing. 	See Committee
Brief, 10. 	Realizing that it might not get any money from the
District from the contract retainage, the Committee goes on, IFIC
“chose the path of least resistance” and claimed a right in the
delay damage funds. 	Id.; T-13. 	Moreover, the Committee went on,
the amount of delay damage settlement is almost exactly the
amount that IFIC has paid in bond claims. 13 	IFIC, the Committee
concludes, would opportunistically benefit from another’s work.
Id.
Implicitly, the Committee is invoking the doctrine of laches
to bar IFIC’s claim. 	This doctrine has been defined as
principally a question of the inequity of permitting a claim to
be enforced. 	Crawford Central School District v. Pennsylvania
Labor Relations Board, 1992 WL 276767 *5(Pa.Com.1992) rev’d on
other grounds, 618 A.2d 1202 citing Blacks Law Dictionary. 	Other
general definitions define laches as a failure to assert one's
rights in a timely manner, resulting in prejudice to the opposing
party. 	Western Pennsylvania Water Co. v. Board of Property
Assessment Appeals, 124 Pa.Cmwlth 133, 143, 555 A.2d 1357, 1362
(1989). 	Laches is an equitable doctrine which depends upon both
inexcusable delay and prejudice to the other party. 	Richland Tp.
Planning Comm. v. Bobiak, 122 Pa.Cmwlth. 624, 627, 552 A.2d 1143,
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1146 (1989).
The Court finds that IFIC’s conduct runs afoul of this
doctrine. 	It took no part in the settlement of the delay damage
claim, stood by while it was submitted for approval and
ultimately approved, and then sprung into action when the
District had refused to tender the settlement funds. 	Indeed the
Court could not help notice—just as the Committee did—that IFIC’s
emergence coincided with the news that the amount held by the
District in retainage began to diminish over time. 	There was no
excuse offered for why IFIC waited as it did and the Court
independently observes none.
Moreover, granting the settlement of the delay damage claim
to IFIC would be grossly unfair to the parties who did the work
to create that fund. 	Simply put, IFIC would profit at their
expense. 	For that reason alone, the Court finds that the
creditors of this estate would be prejudiced if this Court
awarded that money to IFIC. 	Accordingly, this Court will apply
the equitable doctrine of laches to deny IFIC’s claim.
Conclusion
The Court rejects all arguments offered by IFIC as to why it
is entitled to the delay damage settlement money. 	The March 6
Order did not intend to encompass such a recovery, equitable
subrogation rights do not extend that far, and such funds are not
subject to an express trust. 	Furthermore, the Court finds laches
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on the part of IFIC in asserting an entitlement to the funds in
question. 	Accordingly, the Court will deny IFIC’s claim to the
delay damage funds and grant the motion to compel as requested by
the Committee.
An appropriate order follows.
By the Court:
_________________________________
Stephen Raslavich
United States Bankruptcy Judge
Dated: 	January 23, 2007
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In 	the 	United 	States 	Bankruptcy 	Court
For 	the 	Eastern 	District 	of 	Pennsylvania
In re 	: Chapter 11
:
Stone Creek Mechanical, Inc. 	:
:
Debtor(s) 	: Bankruptcy No. 04-11255 SR
Order
And Now, upon consideration of the Creditors Committee’s
Motion to Compel Enforcement of the Debtor’s settlement of its
delay damage claim against the Pennsbury School District,
International Fidelity Insurance Company opposition thereto, the
parties brief, after a hearing held on Novembere 9, 2006, and for
the reason set forth in the attached Opinion, 	it is hereby:
Ordered, that the Committee’s Motion to Compel is Granted
and the sum of $78,500 presently held in escrow be released to
the Debtor’s estate.
By the Court:
Stephen Raslavich
Dated: 	January 23, 2007 	United States Bankruptcy Judge
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2
Interested Parties:
George Conway, Esquire
Office Of The U.S. Trustee
833 Chestnut Street
Suite 500
Philadelphia PA 	19106
Counsel for the Creditors Committee
Bonnie R. Golub, Esquire
WEIR & PARTNERS LLP
Suite 500, The Widener Bldg
1339 Chestnut Street
Philadelphia, PA 19107
Counsel for International Fidelity
Insurance Company
Robert T. Carlton, Jr., Esquire
WOLFF & SAMSON PC
Two Penn Center, Suite 1310
1500 JFK Blvd
Philadelphia, PA 19102
Counsel for Debtor
Allen B. Dubroff, Esquire
JAFFE FRIEDMAN SCHUMAN NEMEROFF
APPLEBAUM & McCAFFERY PC
7848 Old York Road, Suite 200
Elkins Park, PA 19027
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